Do I need insurance if we have great tenants?

It’s a simple question a lot of landlords ask. But the answer is a bit more complex.

Landlord insurance is all about protecting owners from the unique risks they face when leasing their investment property. It can provide cover for tenant-related losses. These losses include loss of rent and tenant damage. Choosing to protect the property itself is usually a no-brainer for owners and the structure is generally insured via a building policy or through a body corporate insurance.

When is a policy necessary?

When it comes to insurance for tenant-related risks, landlords may question whether a policy is necessary. The argument often put, is that they don’t need cover because they have great tenants – ones who always pay their rent on time and in full and look after the home like it was their own. Another argument put by owners is that they have a property manager and, if their agent is doing their job properly, they shouldn’t experience any of those tenant-related losses.

The problem with this thinking is that your property manager isn’t some omnipotent presence in every rental property, standing guard to prevent the unexpected. And like you they can’t know what is going to happen in the future.

Life is unpredictable!

Like the weather, life can be very unpredictable. Things happen that can derail the best intentions of even the most reliable tenants. Take, for example, loss of income, it wasn’t that long ago that many tenants were experiencing financial hardship due to COVID-19 as businesses shut down and many saw their hours reduced or lost their jobs completely or were unable to return from overseas so ended tenancies. If your tenant loses their job, they may not be able to pay their rent. The same is often the case if a tenant becomes ill and cannot keep on top of rent payments – the arrears quickly add up and can become insurmountable. A tenant passing away can also result in financial losses for landlords. It’s an awful thought, but unfortunately it does happen.

Another common scenario is the breakdown of a relationship. Whether it’s a couple separating or a rift between housemates, when relationships go sour, it can result in the person remaining at the rental being unable to meet the financial commitment. In some nasty cases, it can also result in the property bearing some of the brunt through malicious damage.

Tenant theft can also be an issue. This is where the tenant steals fittings/fixtures and contents owned by the landlord. Don’t think it never happens – it does. We’ve had claims for stolen tv’s, washing machine, dryers, fridges, dining table and chairs, beds, bedside tables, and couches!

What happens if something happens at your property that injures your tenant or someone elses property?

Legal liability is another feature in specialist landlord insurance policies that should not be overlooked. What exactly is legal liability? Well, according to the Cambridge Dictionary, it is: ‘responsibility that someone has for their actions, for example the responsibility to pay another person for harm or damage that is a result of these actions’. In a nutshell, if you are responsible for something happening that injures a tenant or someone else’s property, then you are liable for compensating the injured party.

It doesn’t matter if a tenant is great or not, accidents happen and when they do Legal Liability claims can stretch into the millions of dollars, leaving landlords well out of pocket if they don’t have the right cover.
As for the argument that a property manager, if they’re doing their job, will render insurance for tenant-related losses and legal liability redundant. While it’s true that a great agent can reduce the risk of renting to a ‘bad’ tenant in the first place with a thorough vetting process and by keeping on top of any issues like late rent payments or damage – they don’t know what is around the corner either.

So, to the question – do I need insurance if I have great tenants?

The answer is almost certainly ‘yes’. Every year we settle claims for tenant-related losses – losses that those landlords didn’t foresee and for which they never expected to be making a claim. Many of those landlords had great tenants too – until things went pear-shaped.